As Government Retrenches, Philanthropy Booms

Last year, as Kalamazoo, Mich., struggled with a budget deficit and other economic woes, two local philanthropists stepped forward, pledging $70 million to improve the city’s fortunes. Earlier in 2016, a group of foundations put up even more money to help another troubled Michigan city, Flint, recover from the contamination of its water supply. And a few years before that, foundations helped to rescue Detroit from bankruptcy.

These episodes, coming after years of cuts in state aid to Michigan’s cities, may offer a glimpse of America’s future.

In Washington, D.C., where it’s already difficult to get things done, governing is likely to get exponentially harder in coming decades as the baby boomers retire and fiscal pressures mount sharply. More states and localities will also face budgetary crises as pension bills come due and as fiscal conservatives prioritize tax cuts over public investment.

So where will the leadership and money come from to take on urgent challenges?

In Michigan and beyond, we’re already seeing an answer: Philanthropy will increasingly slide into the driver’s seat of public life, with private funders tackling problems that government can’t or won’t.

This is hopeful in many ways, and most of these donors have the best of intentions. But make no mistake: Their influence is growing in tandem with their largess, shifting power away from democratic institutions.

Look in any area — the arts, education, science, health, urban development — and you’ll find a growing array of wealthy donors giving record sums. Philanthropists have helped fund thousands of charter schools across the country, creating a parallel education system in many cities. The most ambitious urban parks in decades are being built with financing from billionaires. Some of the boldest research to attack diseases like cancer and Alzheimer’s is funded by philanthropy. Private funders, led by the Gates Foundation, play a growing role in promoting global health and development.

More big league givers keep emerging as the vast fortunes of a second Gilded Age are harnessed to philanthropy. The most recent: The Amazon founder, Jeff Bezos, worth more than $80 billion, last week posted on Twitter a “request for ideas” for a philanthropy strategy he should pursue. Among a Forbes 400 with a combined net worth of at least $2.4 trillion are numerous billionaires who plan to give away much of their wealth. All told, over $20 trillion is likely to find its way to philanthropy in the next half century.

It’s true that philanthropy doesn’t have anything close to the resources of government and can’t replace vital functions of the public sector. But the giving power of private funders has grown more significant as federal spending has flatlined, especially funds that can be used flexibly. Nondefense discretionary spending totaled $518 billion in 2016, compared with charitable giving of $390 billion last year. This gap is likely to keep narrowing as budget cuts hit harder and the wealthy step up their giving. Donors are also using for-profit social investments on a much larger scale — like when Bill Gates recently organized a slew of billionaires to invest in clean energy research.

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It’s not just their money that makes the givers so powerful in public life; it’s also their nimbleness. Answering to neither voters nor shareholders, philanthropists and foundations can move boldly. This freedom sounds like a good thing, and often is. But it can produce actions disruptive to communities, as we saw in Newark, where donors led by Mark Zuckerberg backed a school reform effort that lacked local support. When things go wrong with big philanthropy, citizens have little recourse. The givers are accountable to no one.

Most Americans have yet to consider what the power shift away from government means for United States democracy. When people think of philanthropy, they tend to imagine giving for museums or hospitals. Yet today’s biggest donors aren’t much interested in such old-style charity, aiming instead to make “systemic” changes in society.

Today’s mega-givers keep charging forward. Although the push for charter schools has created both enormous controversy and mixed results, top philanthropists in this field are doubling down. The Walton family is spending $1 billion to promote school choice over the next five years — almost as much as it spent in the previous two decades. A group of funders in Los Angeles are advancing a plan to move half of all K-12 students in that city into charter schools, stirring fierce debate.

In New York City, a proposed island park in the Hudson River financed by the billionaire Barry Diller and his wife, Diane von Furstenberg, has faced strong legal challenges that underscore a growing uneasiness about the role of private money in public spaces. Other big urban park projects have raised similar concerns, and in Baltimore, alarm bells went off when philanthropists funded an aerial surveillance project by the city’s police department.

Surveys show that most Americans feel that their voice doesn’t count in public life and want to reduce the influence of the wealthy. But today’s big philanthropy is moving us in the opposite direction, at a time when inequality stands at record levels.

It’s time to look harder at how the wealthy wield clout through philanthropy — and to update oversight rules for a new era of megagiving.

For starters, there should be more transparency in the reporting of charitable gifts, which increasingly flow through opaque entities like donor-advised funds that allow givers to remain anonymous, even when their donations seek to influence government policy. Such funds should have to reveal where their money is coming from. More timely reporting of gifts is important, too.

There should also be stricter limits on tax-deductible giving, to discourage gifts by wealth holders that amplify their preferences in public debates. In an earlier era, when America had less inequality and stronger mass-member organizations, nonprofits advocating on policy issues typically spoke for lots of ordinary people — not a handful of private funders, as is now often the case. One way to rebalance civic life would be to restrict the size of allowable tax-deductible gifts to policy groups, while encouraging gifts by smaller donors. Another step might be to narrow which nonprofits qualify for tax-deductible gifts, with an eye toward reducing giving to influence public policy.

Ultimately, efforts to level the playing field of civic life won’t get very far as long as economic inequality remains so high, putting outsize resources in the hands of a sliver of supercitizens. Critics of today’s income and wealth gaps tend to focus on who gets what. Yet as a deluge of new wealth pours into civil society, which Alexis de Tocqueville once saw as the realm of the Everyman, we should also be asking who gets heard.